CORPORATE GOVERNANCE AND DISTRESS PROBLEMS IN COMMERCIAL BANK IN NIGERIA

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CORPORATE GOVERNANCE AND DISTRESS PROBLEMS IN COMMERCIAL BANK IN NIGERIA

ABSTRACT

This study is on corporate governance and distress problems in commercial bank in Nigeria. The total population for the study is 200 staff of CBN in Lagos state. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. A total of 133 respondents made accountants, human resource managers, senior staff and junior staff was used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies

CHAPTER ONE

INTRODUCTION

Background of the study

The issue of corporate governance has recently been given a great deal of attention in various national and International forays. This is in recognition of the critical role of corporate governance in the success or failure of companies. Corporate governance refers to the processes and structures by which the business and affairs of an institution are directed and managed. In order to improve long-term shareholder value by enhancing corporate performance and accountability, while taking into account the interest of other stakeholders. Corporate governance is therefore about building credibility, ensuring transparency and accountability as well as maintaining an effective channel of information disclosure that would Foster good corporate performance. The strategy for addressing the challenges of corporate governance has taken various forms at both the national and International levels and have culminated in initiatives such as: the OECD Code; the Cadbury Report; the Basel Committee Guidelines on Corporate Governance; the King‟s Report of South Africa etc. It is therefore necessary to point out that the concept of corporate governance of banks and very large firms have been a priority on the policy agenda in developed market economies for over a decade. Further to that, the concept is gradually warming itself as a priority in the African continent. Indeed, it is believed that the Asian crisis and the relative poor performance of the corporate sector in Africa have made the issue of corporate governance a catchphrase in the development debate (Berglof and Von -Thadden, 1999). Several events are therefore responsible for the heightened interest in corporate governance especially in both developed and developing countries. The subject of corporate governance leapt to global business limelight from relative obscurity after a string of collapses of high profile companies. In developing economies, the banking sector among other sectors has also witnessed several cases of collapses, some of which include the Alpha Merchant Bank Ltd, Savannah Bank Plc, Societe Generale Bank Ltd (all in Nigeria), The Continental Bank of Kenya Ltd, Capital Finance Ltd, Consolidated Bank of Kenya Ltd and Trust Bank of Kenya among others (Akpan, 2007). In Nigeria, the issue of corporate governance has been given the front burner status by all sectors of the economy.

Due to so much distress in the banking sector, consolidation was made to lead to enhanced services and deepening of financial intermediation on the part of the banks. On July 6th 2004, the Central Bank of Nigeria reformed the financial system by increasing the capital base of banks to N25billion. The reform led to a withdrawal of public sector funds amounting to N74 billion. The reform also led to mergers and acquisitions, which reduced the number of banks in Nigeria from 89 to 25. The consolidation however, led to a review of the existing code for the Nigerian banks, which led to the development of the 2006, Code of Corporate Governance for Banks in Nigeria Post Consolidation. This was made to complement and enhance the effectiveness of other policies in the Nigerian Banking Sector. The distress syndrome was first observed in 1989 when there was mass withdrawal of deposit by government agencies and other public sector institutions which revealed the financial weakness of certain banks like the National bank of Nigeria and the Commercial trust bank Limited which was bedevilled by boardroom cries and inside abuse. (Osuka, Bernado & Chris Mpamugoh). The consistent bank failures and financial crisis during the last two decades has raised questions on the consistency of the Corporate Governance practices in the banking system. Measures taken to regulate banks during this period include the establishment of the first banking ordinance of 1952 which proved inadequate to curtail bank failures; the establishment of the Central bank of Nigeria (CBN) in 1958 to serve as the regulatory body of banks and also, the development of the structural adjustment program in 1986 which led to the proliferation of more banks. However, the political instability between 1992 and 1993 put the entire financial system into a state of chaos as there were “RUNS” on the banks and this led to a prolonged crisis in the banking sector. The resultant effect of this crisis led to the introduction of the consolidation policy in 2004 by CBN to alleviate the effect of the crisis. The most recent bank distress in the Nigerian economy can be traced to the global financial crisis which began in the United States of America and the United Kingdom when the global credit market came to a standstill in July 2007 (Avgouleas, 2008). The crisis, brewing for a while, really started to show its effects in the middle of 2008. Around the world, stock markets have fallen, large financial institutions had collapsed or been bought out, and governments in even the wealthiest nations have had to come up with rescue packages to bail out their financial systems. This had significantly been related to Corporate Governance issues. The turmoil in the Nigerian banking system has required the Government to set up some policies in form of corporate governance to stem the tide of bank failures and distress in Nigeria. Therefore, the CBN in conjunction with other supervisory institutions has decided to place emphasis on the monitoring of credit risk and provide incentives on prudent management of banks to aid transparency in the banking system, so that the Nigerian economy can forge ahead. Corporate Governance in the banking system has assumed heightened importance and has become an issue of global concern because it is required to lead to enhanced services and deepening of financial intermediation on the part of the banks and enables proper management of the operations of banks. To ensure this, both the board and management have key roles to play to ensure the institution of corporate governance.

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